The Blockchain Alternative

521 Pages·2017·3.08 MB·English

by  Kariappa Bheemaiah

Kariappa Bheemaiah
The Blockchain Alternative
Rethinking Macroeconomic
Policy and Economic Theory
Kariappa Bheemaiah
Paris, Paris, France
Any source code or other supplementary material
referenced by the author in this book is available to
readers on GitHub via the book’s product page, located
at www.apress.com/9781484226735 . For more
detailed information, please visit
http://www.apress.com/source-code/ .
ISBN 978-1-4842-2673-5 e-ISBN 978-1-4842-2674-
2
DOI 10.1007/978-1-4842-2674-2
Library of Congress Control Number: 2017934075
© Kariappa Bheemaiah 2017
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In remembrance of Professor Nigel F.B. Allington.
A teacher, mentor and friend who taught me how to
learn.
Introduction
Infiltration was the name of the game in 2015. Indeed,
both emotionally and economically, it was an
extraordinary year. While the world horrifically
responded to the spate of terrorist attacks within their
own borders, such as in Paris and other parts of the
globe, the world of finance bore witness to a new kind of
infiltration within its own borders. The Blockchain,
which up until then was a technology only being
discussed on the fringes of the financial world, was
suddenly on the tips of the tongues of investors, VCs,
bankers, and governments.
From its relatively modest beginnings seven years
ago in an obscure white paper, the technology was now
in full bloom and one could hardly pick up a newspaper
or a magazine without some mention of it. As questions
began to be asked, a slew of blogs and amateur
documentaries became available online, with even the
BBC joining the ranks. 1 But if 2014 was the year of
bitcoin documentaries, 2015 was the year of Blockchain
conferences. Talks, round tables, and seminars abounded
all over the world, with keynotes being given by
bankers, politicians, academics, investors, coders, and
technologists. As 2016 rolls out, it is definitely
becoming the year of books on the Blockchain, with
over 15 books and counting having been published on
the subject this year alone. 2 It would be safe to say that
the technology is becoming mainstream, which is a
pleasure for people like me who have been following the
subject for a few years.
So why another book on the subject? The answer to
this question lies in scope, scale, and objective. While
most of the brilliant works which have been published in
the past year address a number of key issues, the
conversation still does not allow most of us to gauge the
gamut of this technology’s impact. Previous and more
recent works regarding the Blockchain have looked at
the applications of this technology in terms of sectorial
transitions. However, there seems to be a lack of insight
geared towards the implications of this technology.
To be able to ascertain what the future implications
could be requires that we not only understand the
Blockchain, but also the other technologies and theories
that are currently changing the way finance and
economics is defined. Hence, this book is not just about
the Blockchain. It is a review of the past and current
ideas, policies, and technologies that are challenging and
changing the functionality of the complex dynamical
system of modern-day capitalism.
Naturally, as changes occur, it leads to a number of
questions. But with the blockchain, the questions are
intimately profound in nature, for as the technology
begins to be adopted by commercial banks and financial
institutions, the questions that need to be asked are with
respect to, what does this mean to the rest of society?
Will this technology provide us with greater
transparency, democracy, and savings? Can it be used to
create a better version of capitalism? And if so, then
how?
The primary aim of this book is not just an attempt to
provide answers to some of these questions, but also to
rotate the direction of the current conversation being had
in various circles in order to encourage a deeper level of
thinking with respect to the technology and its uses. To
do so necessitates a return to the fundamental beginnings
of currency and the concept of money. Hence, the first
part of the book deals not with the Blockchain, but with
the mechanics of how money and debt is created. We
begin by understanding how fractional banking, the
current system used in the production of money, works
and thus gain some insights into the operating system of
monetary economics. This gives the reader a clear view
of how debt and the financialization of assets are
leveraged by the financial system to create the bedrock
of modern capitalism. Without a sufficient understanding
of these topics, there is no context for the conversation.
The second part of this book delves into the
blockchain from the perspective of its transitionary role
in finance. Following the financial crisis of 2008, the
financial sector has been in a state of flux. On one side,
governments and regulators now demand a greater level
of transparency with respect to financial innovation,
taxation, and cross-border transactions. On the other
hand, technological progress is defragmenting the
financial sector, causing incumbents to be challenged by
tech firms. While the current dialogue looks at the
blockchain as an independent technology, this section of
the book attempts to clarify its amalgamator function
when juxtaposed with other technologies that are
currently fragmenting the sector of finance. By looking
at the Blockchain as a tool that can leverage the
advances being made in other disciplines of finance, now
popularly cited as Fintech, it allows us to gain a more
holistic viewpoint of the role of this technology.
Having gained an understanding of how finance is
being fragmented in the context of technology, debt and
money creation, the third part of this book attempts to
determine what the implications of these paradigmatic
shifts mean to societal monetary systems. While the
reasons for the changes being seen in the sector of
finance are often looked upon as independent
fluctuations, they are in fact interrelated, and the
precipitate of this interaction begets a need for a new
definition of economics. This section attempts to
articulate that definition by offering the reader an
understanding of how different technologies, including
the Blockchain, are transforming the sector of finance
and creating a new paradigm of capitalism.
The third and fourth parts of the book look at the
impact of this technology from a more macroeconomic
level. After a brief discussion on monetary and fiscal
policy, a review of the possible implications to central
banking is made. We will also analyze what the
consequences of multiple currencies, decentralized
ledgers, and cryptographic control systems means to
central banking. This sets the stage for what measures,
tools, and theories need to be understood in order to
create a new framework of monetary economics. It is
here that the reader will also be introduced to the
concept and the emergence of a cashless economy. Apart
from describing the implications of a cashless system in
terms of controlling excessive debt and economic
pollution, the reader is also introduced to what new
branches of science will help us gauge and govern this
system.
While the subject of economics is old, the methods
being used to understand these multifaceted ecosystems
do not pay homage to the intricacy that results from its
intertwined lattice structure. What is required in today’s
data-rich environment is an approach that allows us to
have greater mathematical exactitude and a higher
probability of identifying systemic risk than current
economic models. As the world increasingly becomes
digital in nature, there is a burgeoning need for a new
way of observing and measuring economic systems. Not
only are our techniques outdated, but so are the theories
on which they are based.
Hence, the final section begins with an assessment
on how current theories and techniques lack in
addressing these conditions and offers the reader an
introduction to the new principles being discovered,
debated and tested. Reference to topics such as
econophysics, adaptive markets hypothesis, complexity
economics and super forecasting 3 will be made and the
reader can expect to find reasoning statements that make
the case for adopting these new theories and tools.
Having described the past and present interpretation
of events, the section ends by attempting to connect the
dots in order to show how the technologically powered
defragmentation of the financial sector can lead to the
creation of a new and less indebted system of fractional
banking. It also investigates if these changes could offer
sovereign states a new way to produce money and looks
at alternatives other than inflation and interest rates to
govern monetary policy. Finally, it reviews different
scenarios of how this new structure can be used to
implement innovative policies, such as overt money
finance and universal basic income, which could help
address issues such as income inequality and
technological unemployment that currently threaten most
economies.
While the purpose of the book it to shed more light